Two Recent Examples of Challenges To Collect “Reasonable” Charges

Two recent cases illustrate the continuing challenges providers, and in particular hospital providers, face when seeking to collect their charges when dealing with “out-of-network” patients.

First Example – A Claim for Services Under an ERISA Plan

In the first, a not for publication decision of the 9th Circuit, Eden Surgical Center v. Cognizant Technology Solutions Corp., et al. [Case No. 16-56422 (9th Cir., April 26, 2018)], the Ninth Circuit in rather abrupt fashion addressed a claim for services arising under an ERISA plan. Eden, styled as a “VIP style” outpatient surgery center (the ASC), sought to collect on a claim against an employer-sponsored plan by taking an assignment in the face of an anti-assignment clause.

The Ninth Circuit, in addressing the enforceability of anti-assignment provisions, had previously determined that in the ERISA context, an anti-assignment provision was both valid and enforceable. See DB Healthcare, LLC v. Blue Cross Blue Shield of Arizona, Inc., 852 F. 3d 868, 876 (9th Cir. 2017). As the Ninth Circuit put it:

“Health care providers’ patients …… receive ERISA health benefits, not the providers themselves. Neither a designation in a health benefit plan nor an assignment by a patient allowing a health care provider to receive direct payment for health services entitles a health care provider to “benefits” on its own behalf. Providers are therefore not ERISA “beneficiar[ies].” They do not have direct authority as beneficiaries to sue under ERISA § 502(a)(1)(B) or § 502(a)(3) to recover payments due them for services rendered, or otherwise to enforce the statute’s protections.”

The result was that the providers did not have standing to sue to enforce their claims for payment against plans, absent some other fact pattern.

In this most recent litigation, the ASC claimed it had just that pattern, alleging that the plan in question had incorrectly advised it: (a) prior to the surgery for which the claim arose, of an incorrect rate for payment of the claim; and (b) after the surgery, that the plan provisions with respect to claims for services did not contain an anti-assignment provision. Thus, it sought to take advantage of these plan errors to pursue its claims under theories of estoppel and waiver.

In the face of these claims, the Court of Appeals was direct, and to the point. First, a plan has no duty to make a provider aware of any anti-assignment provision to begin with. That is an issue for the provider. This is true even if the matter has gone through a number of administrative appeals, where the claim was denied without reference to the standing of the provider to assert it. Second, if the plan has not wrongfully induced the provider to believe there was not an anti-assignment provision, then there is nothing inequitable about denying the claim.

Lessons Learned from this Decision

The lesson here is pretty clear. In the ERISA context, providers are well advised to not only determine if their patient has insurance, but whether that insurance policy has an anti-assignment provision, from the beginning. If not, it may well find that it can neither collect from the patient, whom it may have told it would only look to insurance, or the plan. Accordingly, a provider should always indicate that if it cannot collect from the plan, it may well pursue collection from the patient.

Second Example – Out-of-Network Reasonable Fees

The second case, a decision by the Texas Supreme Court, In Re North Cypress Medical Center Operating Co., Ltd., Relator (Case No. 16-0851, April 27, 2018), also illustrates what can happen in the out of network context, even when a provider is entitled to be paid its “reasonable” fees. In this case, the provider was a physician-owned acute care hospital seeking to collect for emergency services charged to an uninsured patient, injured in an auto accident, at its chargemaster prices, aided by the filing of a lien allowed under Texas law.

The specific issue addressed by the Supreme Court was related to a discovery request – for the specific services in question, “all contracts regarding negotiated or reduced rates…”, the annual cost report, the Medicare reimbursement rate, and the Medicaid reimbursement rate. The question was whether that information was actually relevant to the matter at hand – the “reasonable and regular rate for services rendered”. The hospital argued, as has been the case in many cases involving claims for services rendered to patients who are not subject to a direct agreement between the provider and a carrier for the services in question, that rates from insurers or governmental payers are really not relevant. Their circumstances are so different, and because they do not reflect a market rate, they really are not comparable and should not be considered.

The Court disagreed. Using the very broad discovery standard, namely that the information sought is “reasonably calculated to lead to the discovery of admissible evidence” (the common discovery standard in federal and state jurisdictions around the United States). And under that standard, it found that “surely for discovery purposes” a hospital’s costs must have “some bearing” on the reasonableness of its charges, and that it “defies logic” to conclude that information about the various levels of payments received have “nothing” to do with the reasonableness of the charges to those who pay directly.

The Challenges of Relying on Billed Charges

Of particular interest in reaching the conclusions that it did, the Court also pointed out the various challenges of relying on the “billed charges” approach, noting that many have criticized the “arbitrary nature” of chargemaster prices, and the incentives that exist to continually raise chargemaster prices to simply increase overall hospital revenue. While at the end of the day, the disparate pricing could be rationally explained, and the pricing to other payers may well end up being not admissible, for discovery purposes, albeit likely subject to a protective order, the information was required to be provided.

Justifying Pricing Approaches

The implications of this result, and others like it, as well as the movement toward a limitation on the levels of so-called “surprise bills” suggest that simple reliance on chargemaster pricing is not likely to be an easy way, in and of itself, of establishing out-of- network pricing. Consideration must also increasingly given to how such pricing is justified as “reasonable” as the factors that go into that equation continue to come under more and more scrutiny. This case, in citing articles referencing the “arbitrary” nature of such pricing approaches also seemingly provides a judicial imprimatur on that characterization, suggesting that provides should develop, if they have not already done so, a documented rationale for their pricing approaches, and the changes which may occur on an annual basis, be it wage rates, pharmacy costs, or overall costs of living.

For more information on Foley’s Health Care Practice , including the team, publications, and other materials, visit Foley’s Health Care Industry Team.